E HubSpot HUBS IPO S-1 Teardown

Positioning

HubSpot is an enterprise class online marketing and sales platform that leans toward inbound rather than outbound interactions. It does more than typical email marketing system and is more interactive than a CRM system like Salesforce.com. HubSpot integrates website pages with email, analytics, SEO, CRM and calls-to-action to create more business from online content. Subscriptions to the HubSpot service start in the hundreds and run to the thousands of dollars per month.

The company is growing slightly north of 50% and just crossed the $100M revenue run rate. Even though gross margins are strong at 67% hefty expenses on sales and marketing contribute to losses that having been running at $34M per year.

The number of customers is about 12,000 and has been growing close to 30% while the average subscription fee per customer ($8,823) has been increasing to drive overall revenue growth. Customer acquisition costs have also been increasing – they stood at $11,334 in June of 2014 versus $10,895 in March. It’s a little odd that a firm like HubSpot has to spend more to attract new customers given that their solution is designed to address this.

Shares to be offered and a proposed range have not been set but the bankers are expected to be Morgan Stanley, JP Morgan, UBS, Pacific Crest, Canaccord and Raymond James.

Market & Competition

HubSpot competes in a large, fragmented and challenging market. At one end they compete with large companies like Salesforce.com (CRM), IBM (IBM) and Oracle (ORCL) and more focused providers like Marketo (MKTO), Marin Software (MRIN) and Constant Contact (CTCT) to name a few. There are also niche providers of services like SEO like MOZ. This helps explain why they have to spend so much to acquire new customers. It’s confusing and myriad alternative approaches exist in solving the same or similar problems.

Strategy & Management

As far as the S-1 is concerned HubSpot will be following the same approach they have been using the past few years – emphasize their “all-in-one” approach over other solutions and get more customers on board. At the same time they’ll continue to increase their average revenue per client with additional usage and contacts stored in the system.

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Disclosure:  We do not have any vested interest in the shares of this stock at the time of writing and publication. We may however take a position post publication and are not under any ...

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Chris Kisnik 5 years ago Member's comment
Curious about their future strategy to competitors.